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Insuring Against Terrorism - and Crime


Saul Levmore


University of Chicago Law School

Kyle D. Logue


University of Michigan Law School

May 2003

Michigan Law and Economics Research Paper No. 03-005; U of Chicago, Public Law Working Paper No. 47; U Chicago Law & Econ, Olin Working Paper No. 189

Abstract:     
The attacks of September 11th produced staggering losses of life and property. They also brought forth substantial private insurance payouts, as well as federal relief for the City of New York and for the families of individuals who perished on that day. The losses suffered in and after the attacks, and the structure of the relief effort, have raised questions about the availability of insurance against terrorism, the role of government in providing for, subsidizing, or ensuring the presence of such insurance, and the interaction between relief and the incentives for future precaution taking. In response to such losses, and in anticipation of others, one might imagine a range of government responses from nonintervention, to subsidized private insurance, to after-the-fact government payments of a fixed or uncertain kind, and so forth.

This Article argues that the particular mix responses the government has chosen with respect to 9/11, including the September 11th Victims' Compensation Fund and the Terrorism Risk Insurance Act of 2002, will significantly affect private expectations about the government's response to future terrorist attacks. One aim of this Article is to explore the relationships between promised or expected government actions (or inactions) and private decisions regarding terrorism risk. These issues lead to some novel ideas about the role of government in insuring against terrorism - and then against crime more generally. Part II provides some background on the response of the private insurance market and the federal government to the losses resulting from September 11th. Part III looks at the positive question of how government and private actors should be expected to respond to the losses of 9/11 and to the prospect of future such losses. It explores the interactions among government relief and charitable responses to 9/11 as well as the existence or absence of private insurance, and draws contrasts between terrorism disasters and natural disasters, as well as between 9/11 and prior terror attacks. Part III also analyzes the circumstances in which episodic relief of the 9/11 variety will lead to (or be replaced by) more permanent, routinized relief, as is available in some other countries.

Part IV takes up the normative question of the optimal mix of government and private relief (including insurance) for terrorism-related losses. It provides a skeptical view of government intervention in property insurance markets, quite generally, and of the particular federal terrorism reinsurance regime that Congress recently adopted. Part V then broadens the inquiry by asking whether the case for government-sponsored insurance against crime, which is to say a much broader set of crimes than terrorism alone, is at least as sound as that for terrorism-related risks. Part VI concludes.

Number of Pages in PDF File: 52

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Date posted: June 6, 2003  

Suggested Citation

Levmore, Saul and Logue, Kyle D., Insuring Against Terrorism - and Crime (May 2003). Michigan Law and Economics Research Paper No. 03-005; U of Chicago, Public Law Working Paper No. 47; U Chicago Law & Econ, Olin Working Paper No. 189. Available at SSRN: http://ssrn.com/abstract=414144 or http://dx.doi.org/10.2139/ssrn.414144

Contact Information

Saul Levmore
University of Chicago Law School ( email )
1111 E. 60th St.
Chicago, IL 60637
United States
773-702-9590 (Phone)
773-702-0730 (Fax)
Kyle D. Logue (Contact Author)
University of Michigan Law School ( email )
625 South State Street
Ann Arbor, MI 48109-1215
United States
734.936.2207 (Phone)
HOME PAGE: http://cgi2.www.law.umich.edu/_FacultyBioPage/facultybiopagenew.asp?ID=220

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